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Inflationary Financing of Government Expenditure in an Endogenous Growth Model

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  • Tapio Palokangas

    (University of Helsinki, Finland)

Abstract

This paper analyses the role of inflation in economies with endogenous growth and congestion in public services. Optimal policy rules are derived for public services and investment. The other findings are as follows. Monetary policy should maximize economic growth. The more inefficient the public sector is, the higher the growth--maximizing inflation rate is. If a currency union accepts a new member with an inefficient public sector, this will boost inflation in the union and decrease growth and welfare in all member economies of the union. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd 2003

Suggested Citation

  • Tapio Palokangas, 2003. "Inflationary Financing of Government Expenditure in an Endogenous Growth Model," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 121-137, February.
    • Handle: RePEc:bla:germec:v:4:y:2003:i:1:p:121-137
    DOI: 10.1111/1468-0475.00075
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    References listed on IDEAS

    as
    1. Kimbrough, Kent P., 1986. "The optimum quantity of money rule in the theory of public finance," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 277-284, November.
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    5. Robert J. Barro & Xavier Sala-I-Martin, 1992. "Public Finance in Models of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(4), pages 645-661.
    6. Zhang, Junxi, 1996. "A simple pecuniary model of money and growth with transactions cost," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 127-137.
    7. Canzoneri, Matthew B & Rogers, Carol Ann, 1990. "Is the European Community an Optimal Currency Area? Optimal Taxation versus the Cost of Multiple Currencies," American Economic Review, American Economic Association, vol. 80(3), pages 419-433, June.
    8. Huo, Teh-Ming, 1997. "Inflation and Capital Accumulation in a Two-Sector Cash-in-Advance Economy," Journal of Macroeconomics, Elsevier, vol. 19(1), pages 103-115, January.
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    10. repec:bla:econom:v:64:y:1997:i:255:p:509-18 is not listed on IDEAS
    11. Cavalcanti Ferreira, Pedro, 1999. "Inflationary financing of public investment and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 539-563, February.
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